What is a contractor license bond?
Prospective contractors must obtain a contractor license bond to become licensed to work in the U.S. Various types of contractors need this bond, including home improvement, HVAC, plumbing, electrical, and roofing contractors. The bond guarantees that contractors follow industry rules, regulations, and building codes and serve the public ethically and legally.
A contractor license bond may be required by the government at the local or state level when applying for a license or permit. Ultimately, it will protect your clients, the public, and the government – three parties that may be affected by your work if a project goes south.
Get Your Contractor License Bond:
- A contractor license bond is required as part of the licensing process for contractors.
- The bond guarantees that contractors follow industry rules, regulations, and building codes.
- You could pay as little as 1-2% of the total bond amount required in your state.
- Bond amounts can range from $5,000 to $100,000 or more, depending on your location.
Who needs a contractor license bond?
If you want to become a licensed and bonded contractor, your state will likely require you to obtain this bond first. Your local government may also have specific bond or permit requirements for your industry. Contractor license bonds are required across the United States for various types of contractors – both residential and commercial.
How do contractor license bonds work?
Contractor license bonds are contracts between three parties:
- Principal: Construction contractor
- Obligee: Government entity
- Surety: Financial institution that underwrites and issues the bond
The government agency (often the state) requires contractors to get bonded to ensure they fulfill the surety contract requirements and the regulations set by authorities. If they violate the contract, a client or other party may file a claim against the bond. The surety may step in to cover any damages the claimant has suffered. Then the contractor must reimburse the surety.
How much do contractor license bonds cost?
The cost of your surety bond may depend on a few different factors:
- Credit score
- Business experience and financial history
- Assets and liquidity
- State requirements
If you have a good resume regarding each of these factors, you could pay as little as 1-2% of the total bond amount required in your state. Bond amounts can range from $10,000 to $100,000 or more, depending on your location. Your state or local municipality will set the amount required based on your industry, project, and work volume.
If you have bad credit, you may still get bonded by paying a higher premium.
Contractor license bonds fall under the license and permit bond umbrella, while contract bonds (AKA construction bonds) are their own category. Here are some of the main differences between the two:
Contractor License Bonds
- A license and permit bond
- Required to obtain a contractor’s license
- For compliance with the rules and regulations of your license
Contract (Construction) Bonds
- Required to win jobs or complete construction projects
- Common types of contract bonds include bid, performance, payment, supply, and maintenance bonds
- Posted for specific projects
- Guarantee that you will fulfill the obligations outlined in a project contract
Contractor bonds protect clients and the public financially if a contractor violates the terms of their business license. If someone files a valid claim, the contractor is ultimately responsible for covering the damages.
Insurance offers financial protection for a contractor and their employees. For example, if an employee is injured on the job, insurance may help cover their medical treatment costs (up to the limits of the insurance policy).
Check with your local or state authority to learn the exact requirements (including the bonds you need) for getting your contractor’s license to legally operate your business. Once you know which bonds you need, you can apply with a surety bond provider like ZipBonds. Fill out our online application, get approved, and print and sign your bond. Finally, submit your bond to the state to receive your contractor license.
Contractor License Surety Bonds
ZipBonds offers the fastest and most secure option for getting the surety bonds you need. Our all-digital platform is intuitive and straightforward. Apply today online by selecting your state below, or call us at 888-435-4191 to speak with an agent directly.
Founders Ryan Swalve and Zach Mefferd formed the vision for ZipBonds.com when they realized how overly complicated it was to help clients place surety. The frustration of being unable to incorporate the technology they’d used in other insurance-focused projects left them thinking “there has to be a better way.”
Fast forward a couple of years, and that better way is the impetus of everything we do at ZipBonds. We constantly look for innovative ways to improve the bonding process for our clients and agents. Our team comprises individuals who understand all angles of surety – for companies, agencies, and individuals. Incorporating everyone’s point of view to improve the process while simultaneously integrating cutting-edge technology is what sets our business apart.